In Short: May's election gambit backfires

06-09-2017

The result of yesterday’s snap election called by U.K. Prime Minister Theresa May might be filed under “failed gamble.” Rather than solidifying her position, the voting cost her party a majority in Parliament. Despite that the new landscape has obfuscated the outlook for coming Brexit negotiations, the Tories remain in power and Brexit should go on as planned.

Facing calls to resign, May has moved quickly to try to consolidate her position. Even as the votes were being counted, she began discussions with Northern Ireland’s Democratic Unionist Party, planned her visit to the Queen and began creating a cabinet.

The muddled election result comes against a backdrop of accelerating inflation in the U.K. that is already weighing on consumer spending and forecast to hurt wage gains this year. Economic growth slowed to 0.2% in the first quarter and continues to be weak.

We see no contagion effects from the hung Parliament. Despite the pound selling off approximately 2%, the decline did not impact continental currencies or equity/rates markets. In short, markets across Europe were unaffected.